RIPPLE: THE

BUSINESS OF CRYPTO
XRP
AND
BITCOIN
PRICE
PRICE OF XRP VS THE GOOGLE
TREND FOR RIPPLE [1]
PRICE OF
XRP VS THE
GOOGLE
TREND FOR
RIPPLE [1]
➢Looking forward, what is your view on
“the future of cryptocurrency” in 2025?
➢Applications?
➢Consumer vs Business-2-Business
➢# of cryptocurrencies that will survive?
1---1000---10,000?
➢Network effects in applications?
➢Role of Government
LOOKING FORWARD, WHAT IS
YOUR VIEW ON “THE FUTURE OF
CRYPTOCURRENCY” IN 2025?
➢Will cryptocurrency serve a significant
role as a medium of exchange in 2025?
➢Will cryptocurrencies complement or
replace traditional currencies?
➢What are the barriers to adoption?
➢Will a volatile asset such as Bitcoin or
XRP truly become a medium of
exchange?
➢How could cryptocurrencies help in
reducing the friction in cross-border
payments?
SWIFT-CROSS-BORDER PAYMENT
FLOWCHART [1/2]
▪ The SWIFT payment process goes
through five parties before payment
eventually reaches the beneficiary.
▪The Sender or the originator initiates the
transfer order from originating bank
▪The correspondent bank helps the
originating bank to transfer further &
deliver the payments cross-border.
▪The Central bank handles the currency
exchange and passes the payment to the
correspondent bank of beneficiary.
▪ The fund eventually arrives at
beneficiary’s bank account in the
beneficiary bank.
SWIFT-CROSS-BORDER PAYMENT
FLOWCHART [2/2]
▪ Inefficient process & High Fees
▪Cross-border payments can be expensive
and sometimes even charged a percentage
fees
▪Both correspondent banks will charge the
payment delivery.
▪Extra fees such as “lifting fees” or
correspondent banking fees by intermediary
banks are common
▪Bank keep the money for extra time and
delay the payout “float money theft”
▪Exchange rate can have big spread
WORKFLOW OF SWIFT MESSAGING
 DIFFERENCES IN
CRYPTOCURRENCIES?
WHAT ARE THE ADVANTAGES OR
DISADVANTAGES OF XRP VS.
BITCOIN AND ETHEREUM
HOW WILL YOU RATE BRAD
GARLINGHOUSE’S STRATEGY FOR
RIPPLE?

A: Excellent
B: Satisfactory
C: Low pass
PROS AND CONS
➢Ripple still has a very small market share
➢The use case for XRP remains uncertain
➢Adoption continues to be slow
➢Luck? Riding the wave of enthusiasm for Bitcoin
➢The primary market seems to be small banks and
non-traditional money transfer organizations
PROS AND CONS
➢Cross-border focus for Ripple makes sense?
➢Does it have a unique business model? Is it addressing a
market in need of better solutions?
➢Has Ripple made real progress in overcoming the “trust”
problem?
➢Selling their vision to regulatory authorities
➢Banks and financial institutions
➢Ripple’s ownership of XRP.
➢Working with banks or against banks?
 PROS AND CONS

➢Progress on building an EcoSystem

➢How can XRP take on SWIFT?
➢Largely stayed under the radar and out of the focus of the
regulators
➢Weak execution?
➢Many customers not using XRP
➢Too volatile and unstable
➢Conflict of interest with ownership of XRP?
 RIPPLE: THE
CRYPTOCURRENCY
 RIPPLE TRANSACTIONS [1]

❖ Ripple transactions and their effects are similar to

transactions in the Bitcoin protocol.
❖ A single transaction’s lifecycle
❖ A transaction is created and signed by the account owner
❖ The account owner broadcasts the transaction to the network.
❖ If the transaction is badly formed or invalid, the trans action
fails immediately.
❖For a correctly formed transaction, there are two paths:
❖it may provisionally succeed but later fail.
❖Alternatively, it may provisionally fail but then succeed. (Why?)
 RIPPLE TRANSACTIONS [2]
❖ Initially, successful transactions can subsequently fail,
or vice versa, depending on the order of transactions in
the round.
❖The account balance at a particular address depends on
the order of transactions arrival
❖ Accordingly, the account balance at a particular
address might or might not be sufficient to process them.
❖Ledger changes are due to user-level transactions
❖ Payments
❖ Changes to account settings or trust lines
❖Offers to trade
 RIPPLE TRANSACTIONS [3]
❖ Every transaction cryptographically signed by an
account owner authorizes one or more changes to the
ledger
❖ No other mechanisms to introduce changes in the ledger.
❖ Every transaction included in the ledger destroys a
certain amount of XRP
❖ Transaction cost
❖ Deflationary impact on the Ripple ecosystem
❖Candidate transactions are proposed
❖ Validated transactions are included in the ledger and
are immutable
HOW RIPPLE LEDGER EVOLVES TO
ACCOMMODATE NEW TRANSACTIONS [1]

The validated ledger at a

particular moment in
time.
HOW RIPPLE LEDGER EVOLVES TO
ACCOMMODATE NEW TRANSACTIONS [2]

New transactions are proposed

HOW RIPPLE LEDGER EVOLVES TO
ACCOMMODATE NEW TRANSACTIONS [2]
The ledger absorbs legitimate
transactions & transitions to the next state
 CONSENSUS IN RIPPLE [1]
➢ Achieved by voting of validators
➢ Example of a Byzantine Fault Tolerant Consensus
(BFT)
➢It can be mathematically shown that N validators will
maintain correctness of the Ripple protocol, provided that
the number of faulty ones, f, is bounded as follows:
 CONSENSUS IN RIPPLE [2]
➢ Ripple ecosystem consists of validating nodes
represented by Arabic numerals 1, 2, 3, and tracking nodes
represented by Roman numerals I–V
 CONSENSUS IN RIPPLE [3]
➢Validating nodes vote for the proposed states of the
ledger
 CONSENSUS IN RIPPLE [4]
➢Once consensus is reached, both validating and tracking
nodes record the new state of the ledger
 CONSENSUS IN RIPPLE [5]
❑ Process for including new valid transactions in the ledger
during the consensus stage.
❑ Validating nodes pick newly broadcasted transactions from
the memory pool.
❑ The transactions are ordered and a new ledger is proposed.
❑ No blocks are needed in the Ethereum protocol since it does
not use the PoW.
❑ Validating and tracking nodes broadcast the proposed ledger,
which contains the list of new transactions, to the network.
 CONSENSUS IN RIPPLE [6]
❑ Every consensus round attempts to validate a new ledger and
change the last-closed ledger’s state consistently.
❑ A successful round results in a newly accepted ledger.
❑ If a consensus round does not reach the minimum threshold
of votes and fails, the voting process repeats until it succeeds.
❑The final validated ledger includes the approved transactions
and changes the state of the ledger appropriately.
❑Three a assumptions about the behavior of validating servers:
❑ Every non-faulty server decides whether to accept or reject a
proposal in finite time.
❑ All non-faulty servers arrive at the same decision.
❑ Both true and false decision regarding a given transaction is
possible.
 CONSENSUS IN RIPPLE [7]
❑ The Ripple protocol consensus algorithm consists of
sequential rounds:
❑ Every proposing server compiles a list of valid candidate
transactions.
❑Each server includes all candidate transactions coming from
its UNL and votes on the validity of these transactions.
❑Transactions passing the minimum voting threshold proceed to
the next round.
❑The final round requires an 80% agreement.
❑Voting rounds continue until the 80% threshold is reached.
RIPPLE VS BITCOIN PROTOCOLS [1]
RIPPLE VS BITCOIN PROTOCOLS [2]
RIPPLE VS BITCOIN PROTOCOLS [3]
WHEN CAN RIPPLE ALGORITHM FAIL TO
REACH CONSENSUS? [1]
If validators are split into cliques, consensus
becomes impossible.
WHEN CAN RIPPLE ALGORITHM FAIL TO
REACH CONSENSUS? [2]
When the connectivity of validating nodes is sufficiently
robust, consensus can always be reached
THE HAWALA SYSTEM [1] • The best known informal
payment system is the Hawala
payment system
• An example of a very efficient
cash transfer mechanism.
• Its main idea is that money stays
in place but changes ownership
• Relies more on trust much more
than conventional transfer
systems
• Is afflicted by additional issues,
such as lax KYC and AML
practices.
 • Hawala’s main problems: money
THE HAWALA SYSTEM [2] typically flows in one direction
• Remittances from the Gulf to India and
Pakistan or from Hong Kong to the
Philippines.
• Thus, to balance accounts, some reverse
Hawala route has to be executed.
• Different forms: The most common one is
for the Hawalador in the developed
country to ship goods to the Hawalador
in the developing country.
• Thus, one of the Hawaladors becomes a
natural exporter, and the other
becomes an importer.
APPLICATIONS
• One can think of Ripple as a modernized and
computerized version of Hawala
• Ripple tries to find chains of banks willing to extend
credit lines to each other, exceeding the amount of money
one wishes to move across the system.
• Ripple payments are not payments in the conventional
sense of the word
• After Alice sends her money to Bob, there is a chain of
reverse transactions, which need to be closed at some
point
RIPPLE MAY SUFFER FROM HERSTATT RISK
• Herstatt risk is essentially a cross-currency settlement risk due to
asynchronous money flowing in and out of the system.
• Example, a bank can receive money as a part of the transaction and
default before honoring its money transfer side.
• June 26, 1974: The troubled German bank Herstatt received
payments in Deutsche Marks from several counterparties and was
supposed to initiate USD-denominated reciprocal payments.
• Herstatt ceased its operations before sending payments due to time
zone differences between Cologne and New York.
• As a result, the counterparty banks did not get their dollars.
• Although this type of risk is significantly reduced due to the
Continuous Linked Settlement’s prevalence for fiat transactions,
the Ripple system functions outside of it and is still vulnerable.
HOW VALUE MOVES IN THE RIPPLE
ECOSYSTEM
Several chains of mutually trusting banks can be
used, such as BA → B1→ B4 → B5 → BB, BA →
B2 → B7 → BB, and BA→ B3 → B6 → BB
RIPPLENET
TRANSACTIONS [1/2]
RIPPLENET
TRANSACTIONS
[2/2]
HOW VALUE MOVES IN THE RIPPLE
ECOSYSTEM
If such chains cannot be found, or are too expensive to use, the
first fiat currency is converted into XRP on E1, XRP is moved
across the network to E2, where it is converted into the second
fiat currency.
ON DEMAND
LIQUIDITY [1/2]
ON DEMAND
LIQUIDITY [2/2]
THANKS